The investment landscape is undergoing a significant transformation as alternative assets, once the exclusive domain of institutional investors and the ultra-wealthy, are becoming accessible to retail investors. This shift toward democratization is being driven by stronger performance in the alternative investment space.
According to a new report from BNY Mellon, the appeal of alternatives’ past stronger returns has spurred efforts to democratize alternative assets by broadening access to them – so-called retailization. Investments in assets such as private equity, real estate, and hedge funds have traditionally been limited to defined-benefit pension plans, sovereign wealth funds, and not-for-profit endowments, along with well-heeled investors.
Access to these alternative investments has been challenging for retail investors and many defined-contribution plans due to limited or unavailable pathways to invest. Regulatory concerns about complexity and potential risks associated with alternative assets, as well as high fees and minimum investment amounts, have served as barriers to entry.
However, despite these challenges, there is a clear movement toward making these assets more accessible to individual investors. This is driven, in part, by the need for strong long-term returns to support longer life expectancies and reduce potential burdens on state resources. It also aligns with many governments’ social objectives as part of their environmental, social, and governance (ESG) strategy.
Several countries are adapting their investment frameworks and guidelines to facilitate easier access to alternative assets for retail and individual investors. This includes creating new product structures that could enhance future retirement incomes by making these assets more accessible.
Alternative asset managers are also evolving their offerings to cater to non-accredited individuals. Innovations such as tokenization could lead to more affordable and accessible products for retail investors.
The report emphasizes the need for more education on the benefits of including alternative assets in diversified saving or retirement plans. It suggests that individuals are likely to save more for the future if they’re nudged with proper incentives, services, and guidance. DC plan innovation that incorporates more private market investments could also help attract and retain talent in a competitive labor market.
In conclusion, the democratization of alternative assets is reshaping the investment landscape, providing retail investors with access to investment opportunities traditionally reserved for the wealthy. This shift is driven by the desire for strong long-term returns and aligns with governments’ social objectives. With countries adapting their investment frameworks and alternative asset managers evolving their offerings, retail investors can expect greater accessibility to these assets in the future.
